China’s Economy on the brink of collapse

 

 

Original Article:The Epoch Times – Jane Lin and Alex Wu

Dated 8 Nov, 2011

Will be interesting to see the effect this will have on the Australian economy.

China\’s economy on the brink of collapse

 

 

 

 

 

This is the recession Australia forgot to have

August 13, 2011

Boy, what a turbulent couple of weeks on global stock markets. In Australia, the All Ordinaries lost 3.75 percent over the week ending 29 July only to accelerate and plunge 7.49 percent the following week. This included a free fall of 4.21 percent last Friday. This week has seen some stability return the markets with a mild recovery of 1.70 percent.

Traders don’t appear to have a single clear reason as to why markets around the world started plunging. In Europe, it was feared the sovereign debt crisis would spread to Italy and Spain and with a potentially large European Union member country defaulting. These fears were worsened with EU parliaments going on August holidays and leaving only the European Central Bank on hand to provide bailouts.

In the United States Tuesday Week, Congress had approved an increase to the $14.3 trillion dollar debt ceiling, preventing an unprecedented default of U.S. debt. Under the plan, the debt ceiling would be increased by $2.4 trillion dollars while also cutting about $2.1 trillion in government spending over 10 years. It took a couple of days, but markets started to wonder if the cuts were in fact all it’s “cut” out to be and if ratings agencies would downgrade U.S. debt anyway.

Those fears were realised last Saturday morning, our time, when Standards and Poor’s took the unprecedented move and downgraded U.S. long term sovereign debt to AA+ explaining, among other things, that the $2.1 trillion in budget cuts “fell short” of the required $4 trillion it believed would be required to keep a triple A rating. Over the weekend, all and sundry went to the defence saying the downgrade didn’t really mean anything, but despite all the reassurances, the Dow Jones Industrial Average plunged 5.5 percent in trade on Monday.

At the peak of the turmoil this Tuesday morning, All Ordinaries index of the Australian Stock Market was down 24.4 percent from the high recorded on the 11th April. At close of trade today, the index is down 16.3% from the April highs.

All this rapid global volatility could be seen as the start of GFC2.

Back at home, both Treasurer Wayne Swan and Prime Minister Julia Gillard was trying to comfort Australians at a time when their super funds were evaporating in front of them. Both said the “Fundamentals” of the Australian Economy is strong, we have record low unemployment and low levels of public debt. There was no mention of Australia’s record levels of household debt. It was an eerily feeling, bringing back memories of Kevin Rudd during GFC1 saying “As Prime Minister I will not sit idly by and watch Australian households suffer the worst effects of a global crisis they did not create”.

GFC1 was essentially about high levels of household debt around the world caused by speculation on housing and that lead to quite substantial housing and debt bubbles. The banks required credit growth and used financial engineering through Collateralised Debt Obligations (CDOs) and Credit Default Swaps (CDSs) to ‘protect’ themselves. When it all went wrong, Governments had to bail them out, effectively transferring the debt from private household balance sheets to the Government’s while at the same time trying in vain to stimulate unsustainable economies, creating surging public debts and sovereign debt problems.

In Australia in 2008, house prices were already starting to come of the boil after our own sizeable bubble. We had quadrupled household debt over a period of 30 years, with growth rates exceeding that of our United States counterparts. With so much money being soaked up in debt repayments, there was not much money left for retail and services underpinning jobs.

Recessions are a normal part of the economic cycle. There will be a period where the economy will get ahead of itself followed by a slow down or correction. However today, Governments have decided we can’t have recessions or let markets run its course, instead we must prop up the economy as soon as it starts to look weak. 2008 was the perfect example, despite a local housing bubble and record levels of household debt, the Rudd government gave $900 handouts to prop up retail, and introduced very generous boosts to the First Home Owner Grants. This does nothing to address the underlying problems, namely our high levels of household debt.

As such, when the stimulus wears off, as it is doing now, we have found out that few can afford a home hence demand for housing credit is at all times low. Of those with a house and mortgage, they paid too much and now can’t afford to undertake discretionary spending, hence Retailing is now at the worst it has been in decades. If shops are not selling stuff, and builders not building homes then you could expect jobs will have to start going.

On Thursday, the ABS released job figures showing unemployment has risen to 5.1%. Economists are now forecasting unemployment will rise further in the coming months. On the same day, other data surfaced showing the number of companies placed into Administration has jumped 25% in June, the second highest monthly total on record.

It comes as a welcome relief today to hear Chris Evans, Minister for Tertiary Education, Skills, Jobs and Workplace Relations indicate the government has no plans for bailouts or new stimulus packages despite the fact that Australia’s economy is slowing and unemployment is trending up. Hopefully GFC2 wont trigger another knee jerk reaction from our Government to bailout unsustainable bubbles, effectively propping them up for another year or two.

» U.S. triple-A debt rating cut by Standard & Poor’s – 5th August 2011.
» More companies going to the wall – The Herald Sun, 13th August 2011.
» Government has no plan for new stimulus – Adelaide Now, 12th August 2011.

Original Source: http://www.whocrashedtheeconomy.com

RBA Warns Many First Home Owners Who Used Government Grants May Now Be Vulnerable

RBA Warns Many First Home Owners Who Used Government Grants May now be Vulnerable

Prosper Australia – First Home Buyers Strike!

David Collyer of Prosper Australia

Who are you listening to?  The Government and Real Estate agents?

You’re not going to find gold and silver beneath the surface of the ground, you need to dig deep.  Well,  just like searching for the “pearl of great price”, we need to dig deeper and search for answers ourselves.

Can the words of David Collyer and Prosper Australia be true?

I guess we will all know sooner or later, here in Australia – but is it going to be a costly lesson?

Don’t be a follower.. dig for yourself!

First Home Buyers Strike – Is there a choice?

Just over two weeks ago a campaign was started urging first home buyers to boycott buying a house in what is considered the most expensive property market in the world. In the last 48 hours, the campaign has achieved phenomenal momentum in both mainstream media and online.

The campaign was started by Tax Reform group Prosper Australia to prevent first home buyers being caught up in what could be one of the biggest real estate collapses in the world. “When the Great Australian Land Bubble bursts – just as land bubbles all around the world have – the freshest buyers are totally exposed. They face financial ruin as house prices fall below their debt. The crippling mortgage repayments become pointless,” Prosper campaigner David Collyer warned.

“We cannot help those who have recently bought, but we can warn prospective buyers – particularly first-timers whose innocence and heavy borrowing leaves them uniquely exposed.”

The Sydney Morning Herald ran a story on the strike yesterday attracting 486 comments. Later in the afternoon, News Limited papers, other FairFax papers including The Age, and a swag of international papers were in on the beat. Today, Sunrises’ Kochie interviewed David Collyer as the campaign hit top gear.

With the market already in a down swing, this could be the knife in the back to finish the job off. Scared Real Estate agents and property investors are on the defensive saying such a campaign is irresponsible and a crash of the housing market could throw thousands into unemployment.

In the Sunrise interview Kochie said “Look the market is already slowing and coming down. Yes, we have the most expensive housing in the world, You don’t want it to crash though, do you?”. David Collyer responded with “We don’t want it to crash in particular, but we suspect it will. Its gone so high and so far, when it returns to norm, it will be quite painful, a lot of people will get very hurt.”

But what are the choices?

Kochie is quite correct. Our housing market is one of, if not, the most expensive in the world and is already starting to cool. Just today, hours after the interview on Sunrise, RPdata released statistics showing National capital city house prices fell 1.3 percent for the three months to February. Darwin is leading the falls, recording a drop of 9 percent in the three months, and 6.7 percent for the single month of February. We have record level of property listings, suggesting everyone is flocking to the exits at once. Housing finance is contracting, along with personal, commercial and lease finance and building approvals are plunging, recording a 21.8 percent fall in February for total dwellings approved.

Reality is, many first home buyers are not choosing to strike – they are forced too. As the property bubble grows faster than wages, many no longer can afford to enter the market – they are priced out. Others have already done the sums and have found it is cheaper to rent. The Economist magazine found based on house price to rent ratios, Australia has the most expensive housing in the world. The glass half fall person, will immediately understand this means we have the cheapest rents in the world, compared to house asset prices.

Banks are starting to comply with new National Consumer Credit laws seeking to achieve “responsible” lending. Under the new laws, banks just can’t give loans willy neally to consumers anymore, they have to actually make sure the consumer can afford them! (yes, I know this is radical). When announcing the bill last year, Nick Sherry, Minister for Superannuation and Corporate Law said “This is a major enhancement to our consumer protection regime and is a decade overdue”. A decade?

“Some families who can in fact maintain a reasonably sized mortgage are often saddled-up with more debt than they need and often more than they can repay. This can lead to losing everything and it just won’t be tolerated anymore. The responsible lending laws will make it illegal for a lender, known as a credit provider, to extend credit for a consumer that is unsuitable based on their needs and their financial capacity.”

It’s no wonder we have quadrupled our household debt as a percentage of household disposable income over the past 30 years, with much of the fat put on in the past decade.

But even if First Home Buyers could continue to access finance to keep the market a float, is it really sustainable long term?

It’s no coincidence that retailers and businesses around the country are going belly up. The Colorado Group is the latest causality, calling in the administrators yesterday. The group owns 434 stores Australia wide under the Colorado, Mathers, Williams, JAG and Diana Ferrari labels and employees 3,800 staff. It follows collapses of Ed Harry, Angus and Robertson, Borders etc with the Administrators of Angus and Robertson announcing the closure of another 12 stores today and the loss of another 102 staff. Retail veterans such as Myer’s Bernie Brookes has never seen the consumer so fragile over his 30 years of retailing. As housing expenses continue to outpace household income, less money is available for discretionary spending among our retailers employing 11 percent of the population and accounting for 19 percent of GDP. Quite possibly the retail and support staff losing their jobs will find it hard to service their mortgages, eventually leading to the collapse of the housing market. After all, the housing market was cooling well before the 15th when Prosper announced the campaign.

Australia’s housing bubble is not based on any fundamentals, but is (was) growing on the continued expansion of credit and immense speculation. Its not sustainable, and will collapse regardless of a strike of first home buyers. As David Collyer warns, Its gone so high and so far that when it returns to norm, it will be quite painful and a lot of people will get very hurt.

» Prosper Calls for Buyers Strike – Prosper Australia, March 15th 2011.
» First Home Buyers – Property Buyers Strike – GetUp! Petition Site .
» Don’t Buy Now! Property Buyers Strike – Facebook Page
» Online campaign targets high cost of housing – The Sydney Morning Herald, 30th March 2011.
» Beware a ‘buyers’ strike’ in property – The Sydney Morning Herald, 31st March 2011
» First home buyers ’strike’ growing – The Adelaide Advertiser, 31st March 2011.
» First home buyers urged to go on strike – The Sydney Morning Herald, 31st March 2011
» Australian home buyers ’strike’ over inflated house prices – The Telegraph (UK), 1st April 2011

www.whocrashedtheeconomy.com Thursday March 31st

House Investors to Lose Interest

National Australia Bank finance chief Mark Joiner yesterday said the property market was fully valued and likely to languish.

“I don’t think property can go up from here,” he said.

“It’s at the top of the range on affordability. It’s well out of line internationally.”

House Investors to Lose Interest

Shock Rise in Mortgage Default Cases

• Borrowers unable to catch up on payments
• Migrating into 90-plus days in arrears
• Mortgage  performance at record low

IF YOU have missed three monthly mortgage payments, expect a default notice in the mail any day now.

More people than ever are defaulting on their home loan repayments, according to credit ratings agency Fitch and the situation is expected to get even worse.

Read more: http://www.news.com.au/money/property/shock-rise-in-mortgage-default-cases/story-e6frfmd0-1226029350473#ixzz1I3hJTweU

Queensland Prices Slump, Is Sydney Next?

“I never get sick of hearing about the housing bubble…I can tell you one thing, property in Sydney is over priced to the hills!  Also I’m in the construction industry in Sydney and things are slowing down right now, very very fast indeed.  The next couple of months ar going to be hard to say the least”

“Go back three years and 97 out of 100 people would say that property prices never fall.  Today you are probably down to 80 out of 100 people.  Give it until the end of the year, and you’ll be closer to 60″

“It looks like Queensland may have sneezed and Sydney is about to catch a cold…next stop Melbourne!”

Click on this link to read more:

Queensland Prices Slump, is Sydney next?

Why Australia is set to follow US path of house price doom

Money Morning reader David wrote us an interesting note about the fall of house prices in the UK:

“I remember living in the UK sometime around 2006 – 2007 and house prices, like Australia now, were overvalued.  As soon as property went on the market they sold at crazy prices…

“Just as you predict here in this email house prices crashed about 18 months after their peak.

“The media blamed it [falling UK house prices] on the world financial crisis, which did have an impact but they were already on their way down.

“So many people forget a house is only worth what someone is prepared to pay for it.”

As time passes there’s always the tendency to compress events.  Looking back now, it’s easy to think all the economic problems started in September 2008… around the time Lehman Brothers collapsed.

But that’s not the case at all.

For starters, the stock market peaked in October 2007.  By the end of September 2008 – before Lehman collapsed – the Aussie stock market had already fallen 27% from the peak…

An article definitely worth reading…find the rest at this link.

Why Australia is set to follow the US path of House price doom